Economics, technology drive Utica Shale decisions

There are both economic and technological reasons to explain why companies are focusing on just a few Ohio counties within the Utica Shale, an energy representative says.

Harry Schurr, general manager of Utica operations for CONSOL Energy, said the western portion of the shale including Ohio counties such as Coshocton, Muskingum, Stark and Summit, which contains significantly more oil, is too shallow and does not contain enough pressure to economically extract the oil.

Schurr spoke Friday at a Columbiana Area Chamber of Commerce event at Das Dutch Haus.

In the eastern portion of the Utica, in counties such as Belmont and Monroe in Ohio and continuing into West Virginia and Pennsylvania, there is mostly dry gas, but extracting the dry gas isn’t as economical as extracting the dry gas in the Marcellus Shale because the Marcellus is geologically shallower than the Utica and therefore cheaper to drill and complete, Schurr said.

Oil and gas companies, therefore, are focusing on the condensate-heavy portions of the Utica play in Jefferson, Noble, Harrison, Guernsey and Belmont counties, he said.

Natural-gas condensate is a low-density mixture of hydrocarbon liquids that exists in the raw natural gas produced from many natural-gas fields.

“Condensate sells for about $90 a barrel,” Schurr said.

The best-producing well for CONSOL in Ohio is in Noble County. It produces 768 barrels of condensate per day, and about 12 million cubic feet of natural gas, he said. Conversely, a well less than two miles away produces only 10 barrels of condensate per day and 9 million cubic feet of natural gas.

“There are a lot of Wall Street analysts who say the Utica Shale isn’t as big as it was advertised,” Schurr said. “I think it’s more accurate to say we’ve identified the sweet spot.”

One of those analysts who has been critical of the Utica Shale exploration is Deborah Rogers, from Energy Policy Forum and a former investment banker and financial consultant.

“The Utica looks like it’s not going to be what it was promoted to be, and that message needs to get out to Ohioans,” she said.

There are a number of companies such as DB Energy, Devon Energy and Chesapeake Energy that are trying to get rid of interests in the Utica Shale, Rogers said.

She said that in January 2012, companies were paying as much as $15,000 for rights in the Utica Shale. “Now those rights are selling for between $1,000 and $8,000 — let’s call it an average of $4,000 an acre,” she said. “It’s clear the industry now looks at the Utica Shale differently.”

None of the shale realities has been long-term, she added.

“All the companies move on to the next latest and greatest,” she said.

Most people who sign a lease will not get that much more money than the lease bonus, Rogers said.

“If you’re in a sweet spot, you might get some big [royalty] checks early on for maybe six to 12 months, but you really don’t see much after that,” she said.

The companies involved with the Utica Shale remain very optimistic about its future, said Dr. Jeffrey C. Dick, professor and chairman of Youngstown State University’s Department of Geological and Environmental Sciences who studies the Utica Shale.

Part of the current problem is there are not enough processing facilities to handle wet gas, Dick said. There are several processing plants that are getting closer to operating, however.

“There was an awful lot of hype [about the shale], which always comes along with this type of thing,” he said.

The early expectations were unrealistic. People expected the shale to be developed much quicker than realistically was possible, Dick said.